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- By Barry Cohen
Seagen, Inc. (SGEN) has recently been named Biotech of the Year by leading industry publication Biopharma Dive, and investors would no doubt agree. Shares of the Seattle-area firm are up nearly 65% year-to-date, far outpacing the Nasdaq Biotechnology Index, which has climbed about 28% since the beginning of the year. Seagen now trades at $182 per share and has been as high as $215.
In its 24-year history, Seagen (formerly Seattle Genetics) has gone from a small start-up pressed for cash to a recognized leader in the rapidly growing area of targeted cancer medicines. With a market cap of more than $32 billion, the company is on the way to reaching the lofty status of "Big Pharma."
"The thinking is that Seagen could emerge as the next sustainable large-cap biotech company," said Kennan MacKay, an analyst at RBC Capital Markets. "And there aren't a lot of large caps out there."
Helping catapult Seagen to the top of Biopharma Dive's list was the Food and Drug Administration's approval of its second and third cancer drugs, which were a long time coming. The company has been riding its first product, blood cancer medication Adcetris, for nearly 10 years. Annual sales recently surpassed $1 billion, making Adcetris the second blockbuster antibody-drug conjugate on the market after Roche's (RHHBY) breast cancer treatment Kadcyla (Seagen splits Adcetris sales with Takeda Pharmaceuticals Inc. (TAK)).
About a year ago, Seagen earned FDA approval for its bladder cancer medication Padcev. As a bonus, tests showed the drug might improve the efficacy of Merck & Co. Inc.'s (MRK) top immunotherapy Keutruda.
In April, Seagen's breast cancer medication Tukysa was green-lighted by the FDA. Merck liked what they saw in Tukysa and another antibody-drug conjugate Seagen had in an earlier stage of development, so the pharma giant dished out $1 billion to establish a wide-ranging alliance between the companies.
Antibody-drug conjugates are highly targeted biopharmaceutical drugs that combine monoclonal antibodies specific to surface antigens present on particular tumor cells with highly potent anti-cancer agents tied together via a chemical linker, according to ADC Review.
That's a fairly straightforward definition. Producing ADC's is the hard part though, often requiring a specific type of scientific expertise. Mackay called developing them an "art, a knife's-edge balancing act, which accounts for their taking so long to become practical. "
Seagen had a blowout third quarter, with huge increases in sales and earnings from the same period in 2019. Giving a substantial boost to profit was recognition of $725 million in upfront payments received from Merck.
In 2021, Seagen's sales are expected to decline, and the company is forecast to become unprofitable as it plows more money into R&D and marketing. Despite this, the price target assigned by analysts is $198, which seems to imply that the higher forecast losses won't have a sustained impact on the company's valuation, according to Simply Wall Street. Currently, the most bullish analyst values Seagen at $254 per share, while the most bearish prices it at $138.
Disclosure: The author has no positions in any of the stocks mentioned in this article
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This article first appeared on GuruFocus.